I want to share a very important trading tip with you so that you might avoid what I experienced this week.
Have you ever had one of those weeks when you’re busy going nowhere?
It’s not that I did nothing, just that I didn’t have time to get stuck into the things I really wanted to get into – namely, trading.
If you only take note of one trading tip let it be this: be as focused and concentrated as a laser… Why changing your mortgage can make you trade like a drunken monkey
My worst enemy this week was sorting out our re-mortgage application. Our fixed rate was coming to an end and it was decision time: take a variable rate because it has lower fees and rates could be going down; fix at current levels in case they go back up again but pay higher fees; or take the hit with a standard variable rate for a while to see if mortgage fees settle down?
The consensus amongst my contacts – who generally know more than the average IFA – was that rates could go down in the short term, but may have to push back higher if/when all the mess settles down because of inflation.
We decided to fix.
Being self-employed, I had to provide evidence of my earnings. Cue one office turned upside down in a scrabble to find all bank statements, trading records and tax returns for the last three years before the deal was closed on Friday.
Phew! All done, but it didn’t make for ideal trading conditions!
In fact, I made my some of my worst trades for a long while.
I was missing entries, taking profits too soon and generally trading like a drunken monkey. I was too busy and frantic to notice what was happening. It was only when the dust settled I realised what a mess I had made of things.
The trades were there for the taking, but I was snatching at things and jumping in too quickly. It underlined what I already know, but didn’t practice last week – that one the most important factors of trading is focus and concentration.
Whether you’re trading for 5 minutes or trading on a longer time frame, you need to give that trade your undivided attention. Once the trade is in progress, depending on how long it lasts you don’t need to necessarily be on top of it all the time, but your pre-trade focus needs to be 100% no matter what your time frame.
I was speaking to a contact of mine who does rather well with online poker. He was saying that he spots the same thing in that field. Friends of his say that they dabble with a game while watching the football or speaking to a friend on the phone. Most of the time, these guys will lose money no because they are not 100% on the ball.
The trading and sports psychology books I read talk of the need for 100% focus for peak performance, otherwise known as ‘Trading in the Zone’. Psychologist Mihály Csíkszentmihályi introduced the concept of flow to help people improve their business and life (I had to focus to type that name, lets call him ‘Csik’ for short!).
Flow is the mental state in which the person is fully immersed in what he or she is doing, characterised by a feeling of energised focus, full involvement, and success in the process of the activity. I was doing some research for this report and found some information on how Cisk identified flow. I was impressed by how much trading fits the bill for a flow-type activity. These are as follows:
– Clear goals (expectations and rules are discernible and goals are attainable and align appropriately with one’s skill set and abilities)
– Concentrating and focusing a high degree of concentration on a limited field of attention (a person engaged in the activity will have the opportunity to focus and to delve deeply into it)
– A loss of the feeling of self-consciousness, the merging of action and awareness.
– Distorted sense of time; one’s subjective experience of time is altered.
– Direct and immediate feedback (successes and failures in the course of the activity are apparent, so that behaviour can be adjusted as needed).
– Balance between ability level and challenge (the activity is neither too easy nor too difficult).
– A sense of personal control over the situation or activity.
– The activity is intrinsically rewarding, so there is an effortlessness of action.
– People become absorbed in their activity, and focus of awareness is narrowed down to the activity itself.
Not all are needed for flow to be experienced. Every trader should have a clear set of rules they have set themselves, at least when it comes to money management – and you can’t get more immediate feedback that the wins and losses you make in trading. The only flow factor identified by Cisk that traders may struggle with is the ‘sense of personal control’ of the situation.
We cannot control what markets will do, but what we can do is control our activities. We can control the way we enter a trade and make decisions that we feel comfortable with. As long as we do all that right, it’s over to Mr Market to decide what he wants to do with the trade. Again we control how we react to it and how we exit. It underlines how trading can be a rewarding activity both financial and mentally.
It also proves how trading like a monkey who’s had three strong coffees is not good for your bottom line! Trading is amazing in that no matter how many lessons you read in a book, they never truly sink in until you personally make the mistakes they were warning you against.
I should have put my tools down for a few days instead of trying to sneak in trades here and there. I knew this was the sensible thing to do but, well, I ignored my own better judgment.
The lesson from the last week is that trading requires full focus and concentration, at least in the initial stages of the trade. Even if you trade for 5 minutes, make that 5 minutes distraction free. In addition, focus may have a positive feedback on your trading and your general happiness. I hope that this lesson in how not to trade helps you not to make the same mistakes I did!